The Blubber

South Korea is banning all short-selling until at least until June to promote a "level playing field" for retail and institutional investors, per Reuters.

The ban on short selling was lifted in May 2021 for trades involving shares of companies with significant market capitalization included in the KOSPI200 and KOSDAQ150 stock price indices. However, it has been maintained for most other stocks.

Short selling is a practice where investors borrow shares and sell them, aiming to repurchase them at a lower price to profit from the price difference.

Financial Services Commission (FSC) Chairman Kim Joo-hyun mentioned that the measure's goal is to address the imbalance between institutional and retail investors, which he described as a "tilted playing field." He stated this during a news briefing.

Kim emphasized that major foreign investment banks had been involved in what he considered unfair trading practices amid ongoing financial market uncertainties. The decision to continue the ban was made to maintain a fair trading environment.

The FSC plans to assess market conditions in June to determine if there has been significant improvement that would allow the ban to be lifted.

In addition to the ban, the regulator recently announced its intention to establish an investigative team to examine short selling by foreign investment banks for potential illegal activities, including practices like "naked short selling."

Notably, South Korea prohibits naked short selling, a practice in which investors engage in short selling without first borrowing the shares or confirming their availability for borrowing. This announcement came after the Financial Supervisory Service revealed its intent to impose fines on two Hong Kong-based investment banks for engaging in naked short selling transactions.

The uncertainties surrounding short-selling regulations are among the factors identified by officials and market observers as needing resolution for South Korea to receive an upgrade to developed-market status by influential index provider MSCI.